Key Performance Indicator (KPI): Definition

Key performance indicators are those financial and non-financial or metric that are used to evaluate the growth of the organization (i.e.) how successful it is. On most cases Key Performance Indicators (KPI) is used in a long term organizational goals. Key Performance Indicators (KPI) helps a retailer to analyst the mission, identify the stakeholders and define the goals. The Key Performance Indicators (KPI) is also known as Key Success Indicators (KSI).

The Key Performance Indicators (KPI) is used in any fields such as schools (Graduation rate, Success in finding a job after graduation), Social service organization (Numbers of clients they are holding) and more. The Key Performance Indicators (KPI) for an organization would be Pre-tax profit, Share holder equity and more. The Key Performance Indicators (KPI) does not change often. It changes only when the goal is changes. They focus on what they are? and how they are measured?. The act of monitoring KPI is known as Business Activity Monitoring (BAM). KPI is basically associated with the organization strategy and concepts such as Business Scorecard.

What are the basic KPI a retailer should adopt?

Not all the retailers adopt the same kind of KPI to meet the organizational goals. But having certain KPI in an organization has become mandatory for a retailer. There are certain basic KPI to adopt by a retailer are such as,

Variable costs – any expenses made at an additional cost are avoidable

How does the KPI helps in increasing your sales?

Once the KPI is defined it gives the clear idea about the goals and the measure and finally what to do with them? It gives a clear idea what is important in the organization and for what they have to work for to achieve. The KPI can be used as the performance measurement tool. It helps in managing the performance of the organization. Also make sure that everyone exceeds or meets the KPI. There are many KPI set by retailers in order to achieving in their business. Giving a vague KPI such as “Should have repeat customers” will not help you to meet the organizational goals. The best KPI would be “Employee Turnover” which you help you in calculating the performance of an employee.
There are five top most KPI are set by the retailers such as,

Sales per hour – Statically compares one sales person with the other and determines who is efficient in selling and attending the customers.

Average Sale – Statically compares the average selling price of a sales person. The higher statistics shows that the person has a wide knowledge on the product and the less statistics reveals that he lacks in the product knowledge or effective description.

Items Per Sale – determines the ability of a sales person compare to sale.

Conversion Rate – shows how many customers they have made from the visitors of the store.

Wage to Sales Ratio – gives a graph comparing the hourly wages of a sales person to hourly sales they have made. This KPI determine their performance level and how effective they are.

Calculating KPI in retail industry

Retail Customer KPIs

Customer GROSS Profit = Customer Sales – Customer Cost of Goods Sold for a period

Customer Lifetime Purchase Value – Monetary value of each customer’s life time purchases from the retailer

Customer Purchase Freq Count – Count of customer purchases transactions over a period of time

Customer Purchase Value – Monetary value of each customer purchase during a period with an average value for all purchases for the period

Customer Reference question – A rating from 0 to 10 that indicates if the customer would recommend the store.

Customer Sales by Segment – This formula is dependent upon defining customer segments (based on age, education, lifestyle, income and other factors) and associating individual customers to specific segments.